Uranium could be setting up to make another +100% move to the upside like it did in 2007, but unlike back then there are a multitude of small cap plays on the precious, yet controversial metal. Before we get into these companies, let’s take a look at the argument for higher Uranium spot prices.
Many of the key dynamics that drove the “atomic” rise in ’07 are present today: Bullish speculation, aggressive demand forecasts for nuclear energy, and Uranium hoarding have all played an integral role in the recent 50% rise in spot prices over the past few months from around $40 to above $60.
Bullish Speculation – The news wire and Internet may have never been so chuck full of Uranium-related pieces, even when prices were at record highs. In addition, many respected prognosticators have revised the future demand forecasts and adopted a more aggressive future outlook. A global search is underway for a clean & economic alternative to fossil fuels and a growing number of pundits are pushing nuclear power as the energy source of the future. While this may or may not be the case, all eyes are now firmly on Uranium as the next big metal investment while gold and silver digest recent triple digit gains.
Aggressive Demand Forecasts: According to Cameco (NYSE: CCJ) – one of the largest Uranium miners in the world – there will be a net increase of 97 nuclear reactors worldwide in the ten year period following January 2009. Commodities Hoarding – Here’s where things get real interesting: Future demand expectations are so high that some parties will do whatever it takes to acquire as much Uranium as possible. In Kazakhstan – the world’s largest Uranium producer with 15% of global resources – a former government official reportedly stoleHALF of the nation’s supply worth tens of billions of dollars.
The Chinese government is reportedly stockpiling Uranium to control the cost for their upcoming atomic expansion and set to purchase twice what it uses this year. China alone is reportedly planning to build 60 new nuclear reactors over the next decade, which would require about 30% of the Uranium mined today. If this type of growth is to occur, industrial capacity & Uranium supply will need to increase substantially. One roadblock here is the fact that many Uranium producers can’t mine profitably when market prices are under $50 per lb, so many have been forced to scale back operations since the beginning of the recession as prices stagnated at around $40 per lb. Russia, which is reportedly planning to build 18 nuclear plants in India and is by many accounts past the point of peak domestic oil production, is boosting Uranium production but slashing exports.
Mega Uranium Ltd (OTCPK: MGAFF) holds the unique potential to become a low-cost Uranium producer because its Lake Maitland, Western Australia resource will not require drilling or blasting. Estimates that I’ve seen anticipate production in the $25 to $30 per pound range. Adding a level of credibility to the company and its property – which is pegged for initial production in 2013 – is the Joint venture with well-known Japanese investors. AURD (the Japan Australia Uranium Resources Development Co. Ltd.) – a conglomerate of 3 of Japan’s largest utilities and ITOCHU Corporation (ITOCHU ) the world’s second largest uranium trading house have acquired a 35% stake in the project
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